41 comments:

Tom, I don't know why you bother debating with Cullen. He doesn't know how to think or even read, apparently. His bizarre rants seem to getting more idiotic by the week.

At the same time you should still put him in his place when he comes out with daft comments like this:

"The MMT idea that spending comes first is just not correct from the operational perspective".

Answer: for the government to collect its currency in taxes or borrow its currency that currency must first be issued by the central bank which is part of the government you total doofus.

But I wouldn't bother responding to all the other garbage he comes out with. You can tell from the tone of his writing that there's just something not quite right in his brain.

Really, the guy seems to be losing any capacity for rational thought. Instead he has a bunch of loosely connected derogatory phrases vaguely related to MMT just sloshing around inside his head in some big sloppy moronic mess.

"Answer: for the government to collect its currency in taxes or borrow its currency that currency must first be issued by the central bank which is part of the government you total doofus."

Not only are you conflating Tsy and the Fed (only one of which requires Congress to appropriate funds and is subject to the debt limit), you're also conflating spending and lending.

Its possible the monetary system could be reformed so that Tsy acted as its own Central Bank, of course... that's how Teddy Roosevelt's Tsy Secretary LM Shaw rolled. However that was before the Federal Reserve Act, until that law is changed, Tsy is subject to all sorts of limitations (that good 'ol Secretary Shaw would probably just ignore anyway).

"Shaw ruled that the depository banks were a part of the Treasury. Movement of funds into the banks or out of them from the subtreasuries,therefore, was not money drawn from the Treasury, but a transfer of the money from one "apartment" to the other."http://qje.oxfordjournals.org/content/77/1/40.full.pdf

I'm not talking about conflating the treasury and Fed or putting them together in some combined central bank I'm saying the currency the government collects in taxes or borrows, comes from the government. Ok, make the point that the government could lend the currency it then collects, instead of spending it. Great Intellectual Achievement. Then go on off on some offensive rant about some half-remembered nonsense vaguely relating to something you never much liked about MMT but could never really be bothered to understand properly in the first place. And then accuse everyone of being dishonest.

This:"I'm not talking about conflating the treasury and Fed"does not sync with this:

"Ok, make the point that the government could lend the currency it then collects, instead of spending it."When you say the government can spend or lend currency, you're conflating Tsy and the Fed."

"some offensive rant about some half-remembered nonsense vaguely relating to something you never much liked about MMT"

Half-remembered nonsense is my value-added (scroll down this blog if you think I'm wrong). In fact, I think Tsy and the Fed should be combined, I'd even go so far as to say Bill Mitchell's support for a nationalized banking system actually makes a lot of sense. My point is only that describing the world as it should be (or as it was 100 years ago) is not the same as describing it as it is today.

Finally, when have I accused anyone (much less, everyone) of being dishonest?

I have great respect for all the main people in the MMR camp. I have points of difference with some of what they say. But that is life. I just think that there have been bruised egos on both sides of the divide - and it is hard to forget the pain.

I'm not conflating the treasury and fed. They are different parts of the same government.

The currency taxed or borrowed by the government comes from the government. Either the government spends it, or it lends it to the private sector before it taxes or borrows it.

Imagine some hypothetical situation where there is no government currency in circulation. The government could, for example, purchase an asset from the private sector (spend), or it could potentially do some other form of spending, or it could lend currency to the private sector.

In the latter case (lending), the private sector is then in debt to the government. How does it pay off this debt?

It can borrow more from the government, increasing its debt (a), or it can lend back to the government, perhaps at a higher interest rate (b). With (b) It is still in debt to the government, but now the government also owes money to it.

For the private sector, in both (a) and (b), to stop being in debt to the government, the government has to spend. The government debt incurred in (b) is a debt incurred in currency it creates at will. As such it can be eliminated by simply spending (purchasing the government bond from the private sector).

Its a question of which debt 'comes first' so to speak. Either the private sector has a debt to the government because it has borrowed from the government, or the private sector has a tax "debt" imposed on it by the government. For the private sector debt to be eliminated the government has to spend.

Half-remembered nonsense is my value-added (scroll down this blog if you think I'm wrong). In fact, I think Tsy and the Fed should be combined, I'd even go so far as to say Bill Mitchell's support for a nationalized banking system actually makes a lot of sense. My point is only that describing the world as it should be (or as it was 100 years ago) is not the same as describing it as it is today. I got past the anti-MMT meme that: Treasury is spending constrained and as a result MMT is not applicable to the so-called specific case of the US. Congress determines how much is going to be spent by the federal government beforehand irrespective of how much money is in the treasury account. Period. They don't call the treasury up asking what the balance is or how much they can spend. Spending is only constrained by legislation and legislative policy.

Right. It is the government as the representative of the people — representatives are agents of the people they represent— that authorizes expenditure through the process set forth in the Constitution and laws.

The Treasury and Fed are agencies of the executive branch, which carries out the will of the people expressed through its political agents, but directing its agencies to do the bidding of these agents by taking action on the appropriations. The various agency do this by placing orders that move private resources to public use, contracting for payment in the currency. Then Tsy directs the Fed to credit the appropriate bank accounts.

Due to the internal structure of the US govt. the Treasury has to have reserves in its account to settle. The way the scorekeeping is presently arranged institutionally, Tsy issues tsys, which the Fed auctions to the PD's and receives payment in reserves, which it credits to the Tsy acct at the Fed (OK it's more complicated than that in practice due to the TTL accounts and reserve management). So internally the Fed is the currency issuer and the Tsys is the issuer of securities.

This could be done differently — for example, Tsy could be authorized to issue notes directly without going through securities. But this is the way it is done at present. It doesn't matter how the the internal scorekeeping takes place, it is the government issues both the currency and the securities, which are issued in the name of the United States and "backed by the full faith and credit of the US."

The point is that the Congress appropriated funds that were then expended as directed, after which Congress placed a restriction on payment of already appropriated funding. That is contradictory policy, and the president can make a good argument that he is following the first directive, the appropriation, since the debt ceiling is not a cancellation order and the US is required by custom and law to meet its obligations.

Congress is not going to impeach the president over this, and SCOTUS, if it heard the case at all, which is doubtful, would agree with the president.

The president needs a constitutional lawyer to advise him. Oops, Obama is a constitutional lawyer.

"I'm not conflating the treasury and fed. They are different parts of the same government...."

con·flate/kənˈflāt/Verb: Combine (two or more texts, ideas, etc.) into one: "the urban crisis conflates a number of different economic and social issues".

So you disagree with me and them immediately restate what I just said. As I said above, conflating the two neglects that Tsy requires congressional appropriations to spend and has to deal with the debt limits (the Fed can lend constrained by neither). Yes, it is odd that the govt as a whole has a debt limit while a part of the govt does not, but there we are (in fact, the whole point of the platinum coin is to offload debt from the constrained whole to the unconstrained part).

"I got past the anti-MMT meme that: Treasury is spending constrained and as a result MMT is not applicable to the so-called specific case of the US."

I know what 'meme' means, but I'm not sure what you mean with the rest; are you stating that is your opinion or are do you think that (however you mean it) is what I think?If your point is that Tsy spending is constrained by congressional appropriations then I agree with you (or if you wish to agree with me, that's OK too); in fact I've state that a couple times this thread ("requires Congress to appropriate funds").

"Its possible the monetary system could be reformed so that Tsy acted as its own Central Bank, of course... that's how Teddy Roosevelt's Tsy Secretary LM Shaw rolled. However that was before the Federal Reserve Act, until that law is changed, Tsy is subject to all sorts of limitations (that good 'ol Secretary Shaw would probably just ignore anyway)."

I agree with all this beowulf, but don't see how it relates to the claim that the government must issue currency in order to be able to tax it. The central bank is part of the government too.

So, the Treasury, per MMR, is a currency user. Except when it can mint a trillion dollar coin. Multiple ones even. In fact, an infinite amount. Details matter, except when they don't?

And this whole notion that we can only describe the monetary system as it exists today on 6/24/2012. That any other discussion is an alternate reality and not worthy of having. That any discussion of self-imposed constraints is disingenuous. I'm sorry, but self-imposed constraints vs. real constraints is really important information to have.

The autistic nerd rage and semantic temper tantrums is baffling. Because the current monetary system on 6/24/2012 IS WHAT IT IS, and there's nothing we can do about it. Unless it's the Buckaroo System because there is no "horizontal" component and we are "diagonalists"? (Provide a definition for THAT). And then not only is reform necessary, but a revolt is in order. To prove a point. Remind me again what that is.

Dan, but the claim isn't the govt must issue currency before it can tax but that Tsy must spend money before it can tax. "Issue currency" moves the goalposts to Tsy must spend money and/or the Fed must lend. The difference is one accommodates the will of Congress and the other, the will of private banks. It doesn't really matter that both have .gov websites.

Trixie, I have to admit, I didn't think anyone could make Morgan Warstler sound like the voice of reason. Bravo..http://www.interfluidity.com/v2/3212.html#comment-24563

You are exactly the person who’s going to get fixed. And I’m going to fix you.

Note you need to hide your name and face in order to sound off against the man.

Once we know who the slackers are amongst us, the $240 is just weekly bait to ID them… we can save all the real workers, anyone who tries and when you get suspended from the dole, you won’t have other unemployed to commiserate with.

Whether you like it or not, we’re making life very hard for the lawyers these days, you should come see TX. In another ten years, losers will pay.

Remember Trixie ONCE middle class Americans get a nice sweet taste of making you clean their garage for $3 per hour, they sure as shit are going to vote for laws that keep you from suing them.

Be honest Trixie, did you know that Ellen had mentioned a trillion dollar coin before I pointed it out?:o)

"After the whole thing took off, someone pointed out that Ellen Brown had written in her book Web of Debt that the govt could pay off its debt by minting trillion dollar coins. if I known that I would have namechecked her."http://monetaryrealism.com/one-cure-for-high-gas-prices-is-worse-than-the-disease/

That was after I wrote, "I can hardly claim ownership rights for words in the US Code" and just before, "I can’t stress enough that Joe took the leading oar on this."

The funny thing is, neither Joe or I came up with the $1 trillion figure nor the idea of using the coins to buy back Fed-held Treasuries. Wigwam posted a diary at dailykos suggesting both.

As for Marriner Eccles, besides the fact the Federal Reserve Building is named after him, I learned about him from Robert Reich's 2010 book Aftershock. Of course I kept that carefully hidden-- oh wait ("Here’s an excerpt from Bob Reich’s recent book Aftershock which sings Eccles’s praises.").http://monetaryrealism.com/marriner-eccles-explains-it-all/#comment-773

The treasury and fed are different things. But they are also both parts of the same single government. Referring to them as "the government" is not incorrect because that is what they are. It is not conflating them because they are already, factually, both parts of the same government. To conflate something one needs to bring together two things which are not already combined. If they are already part of a single entity and can therefore be accurately described as such no conflation occurs. The treasury and fed are both different parts of the same government. As such it is correct to refer to them as "the government". No need to conflate anything.

"internally the Fed is the currency issuer and the Tsys is the issuer of securities"

It can be argued that the treasury is also the currency issuer.

Federal reserve notes are clearly defined as liabilities of the fed and obligations of the US government. It makes no sense to say that someone acquires and stores their own obligations as assets. When one recieves one's own IOU, or obligation, it is no longer an IOU. It effectively ceases to exist. When one gives someone one's own IOU, the IOU, or obligation, is created.

Under current arrangements the treasury has to get its IOUs in before it can put its IOUs out. In order to get its IOUs in it has to issue other IOUs which earn interest. That is an internal accounting proceedure which has no effect on its ability to spend.

Yes the government, in the form of congress and the president, can stop itself from spending. The fed's ability to issue currency is also dependent on congress and the president allowing it to do so.

You didn't mention that.

Focusing on the internal accounting proceedures is useful but can make one lose sight of the wider picture if one's not careful. Half the economics profession has been so confused by the institutional smoke and mirrors that they have become incapable of uttering rational statements.

JKH managed to write 15 million words on the subject without once acknowledging that fed notes are government obligations. Perhaps next time he will write 15 million words on the intricate details of the Fed's internal cash and capital management proceedures with an equally large blind spot right in the middle of his vision.

Stop the squabbling. I think I was the one who mentioned it somewhere that Ellen Brown in her book had the idea that she took from elsewhere. In her book, page 372, she says

Quote:In the 1980s, a chairman of the Coinage Subcommittee of the U.S.House of Representatives pointed out that the national debt could bepaid with a single coin. The Constitution gives Congress the power tocoin money and regulate its value, and no limitation is put on thevalue of the coins it creates.8 The entire national debt could be extinguishedwith a single coin minted by the U.S. Mint, stamped with the appropriateface value. Today this official might have suggested nine coins, eachwith a face value of one trillion dollars.One problem with that clever solution is, how do you make changefor a trillion dollar coin? The value of this mega-coin would obviouslyderive, not from its metal content, but simply from the numerical valuestamped on it. If the government can stamp a piece of metal and callit a trillion dollars, it should be able to create paper money or digitalmoney and call it the same thing.

Beowulf's brilliance was in locating the reference to the 1996 law that made it legal to do so and bringing it out to public view! Until 1996, even though it was possible for the government to coin a trillion dollar coin, it was not legal to do it.

Beowulf, the claim to which you replied was "for the government to collect its currency in taxes or borrow its currency that currency must first be issued by the central bank which is part of the government you total doofus."

Tom "internally the Fed is the currency issuer and the Tsys is the issuer of securities"

y: "t can be argued that the treasury is also the currency issuer. Federal reserve notes are clearly defined as liabilities of the fed and obligations of the US government."

To argue against myself (actually JKH's distinction between Fed as currency issuer and Treasury as currency user) whose signature is on the federal reserve notes (FRN)? There is a signature and under it the title reads, wait for it, "Secretary of the Treasury"! Emblazoned across the top of the FRN is "The United States of America."

And whose picture is on the bills, mostly US presidents other than Alexander Hamilton, Tsy sec., and Ben Franklin, who never got to serve in high federal office other than a stint as an ambassador, but is considered to be a founding father and was called "The First American" due to his role prior to independence. Um, no Fed chairmen.

The truth is that the Fed has been delegated the authority to print and distribute notes and coin, whereas the authority to mint coin remains with Tsy, as well issuing Tsy notes when this is the practice. The Fed is also delegated the authority of being the govt's bank (Federal Reserve Act), and in that capacity to issue reserves and to "keep score" as Warren says.

This is the internal money creation process for outside money in the US. It is true that FRN make up most of it, so it is correct to see the Fed as issuer. Tsy, of course, issues US tsys but it is not the only agency to issue securities, either.

The fact is that all these are done iaw US law and iaw supplementary regulations of the executive branch. — which constitute the US government. The US government is the sole issuer of the UL dollar.

Bank have a "franchise" that permits them to create deposits denominated in the currency of unit of account, but they cannot create the currency itself. When they need currency (reserves and cash) for settlement, they much obtain it from the appropriate govt agency, which is legally designated as the Fed.

Chris Cook makes a big deal over the fact that deposits are records in the unit of account, not currency. Final settlement of accounts after netting takes place in currency, and banks as agents of their customers have to obtain currency as needed to settle in order to clear customers' drafts interbank (after netting) and meet window demand for cash.

Actually, the Tsy spends almost nothing, just the expenses of the Dept of the Tsy. It's the other agencies that spend iaw appropriations and presidential direction through the executive branch chain of command. The bills go to Tsy, which directs the Fed to pay them from its Fed account.

Govt is as the people agent is doing everything in the name of the people of the USA, and iaw the actions of the people's agents, the elected officials. Internally in govt. various agencies cooperation in getting the job done. In the end, all action is undertaken by the US govt in the people's name and on the people's behalf. That's what a liberal democracy is a about.

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence,[note 1] promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

The rest of the Constitution establishes the govt as people's agent and fundamental law of the land — the rule of law as the social compact of the US and how it will be administered.

The Chairman of the House Banking, Finance and Urban Affairs, Consumer Affairs and Coinage Subcommittee in the 1980's that Ellen mentions was Frank Anunzio and I am pursuaded that Al D'Amato may well have been aware of the idea, and that idea may well have been at play when the platinum coin language was slipped in, in the 1996 Act.

"Yes the government, in the form of congress and the president, can stop itself from spending. The fed's ability to issue currency is also dependent on congress and the president allowing it to do so.You didn't mention that."

You're mixing apples and orangutans. Tsy may only spend-- or to be precise, issue appropriation warrants* -- per congressional appropriations, which are usually enacted annually.The Fed lends based on authority given it by Congress in 1913 and never repealed.

To put it another way, the House, Senate and President must agree to specifically opt in to approve Tsy spending every year, but they must specifically agree to opt out of the FRA to stop Fed lending (and for 99 years, they've never agreed to do so).

While it is true from the point of view of systems analysis that the black box is unimportant, the only matter of fundamental significance being input, output and feedback loops, but there is a value in public understanding of the basic mechanics within the black box, too.

John Kenneth Galbraith: "The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it." Money: Whence it came, where it went - 1975, p 15. "The process by which banks create money is so simple that the mind is repelled." Money: Whence it came, where it went - 1975, p 29.

A crucial point in the process of money creation is also the difference between inside money that necessarily nets to zero owing to double-entry, and outside money that doesn't (NFA), even though both are denominated in the currency as the unit of account.

"…there is a value in public understanding of the basic mechanics within the black box…"

The key word here is "basic" and no one disputes that.

Most of the discussion within the MMT community makes simplifying assumptions to this end.

It certainly doesn't merit the emotional jousting that has been generated over so-called institutional hierarchy.

Getting into arcane accounting and legal minutia is way beyond necessary and has no chance of ever penetrating the public mind. If they accept it it will be because someone else said so not because they understand it.

How complicated the maze is that our accounting has to go through before dollars emerge into the non-government is unrelated to what happens once the dollars enter the system.

In my view it is made complicated on purpose so that it is impenetrable. Then we can be sold the snake oil and be thankful for it

The discussion is unproductive except for folks like STF et al. The ramifications are irrelevant to the system other than the three possibilities outlined.

The current monetary sovereigns have varying institutional arrangements and yet are able to accomplish the same result in the end.

They create a net increase/decrease of new money (or not).

The rest is plain old politics and the sooner the public realizes that this stuff isn't really all that complicated the better off they will be.

I know what 'meme' means, but I'm not sure what you mean with the rest; are you stating that is your opinion or are do you think that (however you mean it) is what I think?If your point is that Tsy spending is constrained by congressional appropriations then I agree with you (or if you wish to agree with me, that's OK too); in fact I've state that a couple times this thread ("requires Congress to appropriate funds"Sorry let me be more exact. MMT intellectuals have stated in the US case. 1) The Federal government does not tax in order to fund itself. Taxes provide a demand (need) for the currency. 2) The Federal government does not burrow in order to fund itself.

Some MMT critics have argued in some threads that 1) and 2) are false in the US case because the treasury account has no overdraft and the Fed cannot directly buy US treasury securities.

My point is this criticism was a bit confusing to me at first(and I've been reading Warren and co since '04) but then I got past it by reading some of STF's commentary on this criticism. 1) and 2) are correct because all federally approved spending is manifested irrespective of treasury balances and operations.

Was reading your posts over at TCOTU related to housing finance wrt the concept that at loan inception, balances are created for principle only, etc...

Was thinking, new NFAs are created when banks issue loans for houses that are re-sold for a higher price than they originally sold for when new construction.

So this process of re-financing re-sold houses for ever increasing amounts could be considered an ongoing 'injection' of NFAs into the system and looks like this could sustain the system for quite a while, subject to, subject to, etc...

The new NFA balances created by this process could conceivably be used to pay the interest portion on previously issued loans that were only for the priciple balance... it is a bit 'ponzi-like' though...

"…So this process of re-financing re-sold houses for ever increasing amounts could be considered an ongoing 'injection' of NFAs into the system and looks like this could sustain the system for quite a while, subject to, subject to, etc..."

I would characterize this as creating a bubble rather than creating growth. I don't think this is creating any NFA's.

Imagine the dynamic with no fiscal spending.

Would values increase so that it was possible to re-finance? Is the refinancing creating net assets? I'm pretty sure it doesn't.

Bubbles pop, but we seem to wave away the effects of the bursting bubble re losses - for the 99%.

The net result always seems to be a transfer of wealth to the top - wealth accumulation.

If banks only issued balances for the principle portion of the loan only, this would quickly come to a stop when folks who had interest payable could not obtain the balances due to 'leakages' to domestic and foreign USD savings.

Then to your point it is evident that the 'horizontal' banks could not sustain this system without govt deficits 'injecting' NFA to those in non-govt with interest liabilites....

However, if folks move or get a job transfer etc... and in this process sell their house to a new owner, but now at a higher price than it originally sold for this would put new balances into the system at that point which could work their way to interest payers to enable them to pay interest.

It's a bit ponzi-like in that without new NFAs coming in this way, looks like the system runs out of balances to pay interest eventually.

Right Paul I think the values would be 'nominal' not 'real' as the houses actually depreciate from new (roof ages, floors, paint, etc).

So when govt allows banks to finance the re-sale of used real estate for a higher sales price than when new, this indeed has the look of a 'bubble-like' phenom.

The other thing this needs is a steady stream of buyers. Perhaps the GFC was in this regard created by a lack of real estate buyers... without the buyers who are willing to pay the higher prices, the banks alone cannot create the loans which create the new NFAs needed to pay the interest portion of the previously issued loans.... then the whole thing shuts down...

Could also be why lobbyists keep going at Congress to get the FNMA ceiling continuously raised.

This FNMA limit is now up to $417k in my area when I can remember it being in the 200's.. Once Fannie raises the amount, then house prices go up and when re-sales are financed at the new higher levels, creates some new NFAs some of which can weave their way to interest payers...